If an apartment complex will need painting in 3 1/2 years and the job will cost $25,000, what amount needs to be deposited into an account now in order to have the necessary funds? The account pays 6% interest compounded semiannually.
This is a case of Coumpound Interest and you have to find the Present value.For Compound Interest the formula isFV = PV ( 1+r/100)^ntherefore, PV = FV/(1+r/100)^n)Here, FV = Future Value = $25000PV = Present Value = ?r = rate of interest = 6%,since this is semiannually, here r = 6/2 = 3n= no. of term = 3 1/2 years compounded semiannually = 7Hence,FV = 25000/(1+3/100)^7)On calculating,FV = $20,327.29Thanks
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